Canada's Inflation Ticks Higher, Surpassing Expectations as Underlying Inflation Fails to Moderate, Says TD

10:34 AM EDT, 10/21/2025 (MT Newswires) -- Canadian headline consumer price index inflation for September came in at 2.4% year-on-year, ahead of expectations for a 2.2% year-over-year print, said TD after Tuesday's CPI data.

September's reading was up from 1.9% year over year in August.

Gasoline prices again provided a smaller drag to the headline, down 4.1% year over year from 12.7% lower in August. On a monthly basis, prices rose 1.9%, with refinery disruptions and maintenance in North America cited as factors.

A monthly rise in travel services prices in September, rather than the typical decline, flipped the annual price change to 1.3% year over year from 9.3% year-over-year deflation in August.

Measures of underlying inflation were a mixed bag, either ticking higher or remaining unchanged in September, pointed out TD. The Bank of Canada's CPI-trim measure rose to 3.1% year over year versus 3.0% in August, while the CPI-median index was unchanged at 3.2% year over year. The CPI excluding food and energy was unchanged at 2.4% year over year and the CPI excluding the eight most volatile components and indirect taxes (CPIX) rose to 2.8% year over year from 2.6% in August.

On a three-month annualized, seasonally adjusted basis, the CPIX (+2.3%), CPI excluding food and energy (1.6%) and CPI-median (+2.8%) were all unchanged in September, while the CPI-trim rose to 2.6% from 2.4% in August.

Underlying inflation appears to have firmed up in the past two months, but it remains within the BoC's target range, according to the bank. One hotter-than-expected month doesn't make a new trend, but it's worth monitoring whether the strength in price pressures is indicative of ongoing consumer resilience.

Canada's central bank should still have room to deliver another cut, added TD. The economic outlook is fraught with risks, and the elevated unemployment rate reflects an economy with ample slack -- something Monday's Business Outlook Survey (BOS) reinforced.

Markets seem to agree, pricing the odds for an Oct. 29 BoC rate cut at 69%, just a smidge lower than the 77% pre CPI release.

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